Startup World speaks to Chris Thomas, the CEO and Co-Founder of Eureeca, a global crowdinvesting platform, on how crowdinvesting is changing the way small and medium enterprises raise funds in exchange for equity.
What is Eureeca all about? Why was the service launched?
Eureeca is a global crowdinvesting marketplace that provides small and medium enterprises with an online platform to raise funds from the crowd in exchange for equity. Investors can earn an equity stake in a business listed on eureeca.com for an investment as little as US$100. In addition to helping SMEs and growth businesses access a potential crowd of investors, Eureeca brings more investment opportunities for the average individual.
The site, which is co-founded by my business partner Sam Quawasmi, was launched to provide businesses with an alternative source of capital. With over 20 years of combined experience as investment bankers and entrepreneurs, we recognised that raising capital is one of the biggest challenges in the growth of a small business.
According to the Kauffman Institute, the lack of cash is also the #1 reason why businesses fail in the first five years of launching. There is a clear “no-man’s land” gap between venture capitalists who are looking to make large investments to generate big returns quickly, and risk-averse banks that offer limited loans to SMEs.
This problem was exacerbated by the changing dynamic in the global economy following the 2008 debt crisis and access to capital became more challenging for any business, let alone SMEs. Eureeca’s platform provides part of the solution to fill this global funding void for small businesses.
In which countries is Eureeca available in?
Eureeca is a global crowdinvesting marketplace. We are able to consider funding proposals and investors from most markets. However, at this stage, we are not able to accept investors or businesses from the US, Saudi Arabia, Japan and Canada.
How do you see the entrepreneurial ecosystem in the Middle East and Africa region?
The Middle East and North Africa (MENA) region currently presents excellent opportunities for entrepreneurs. We are seeing some very progressive new businesses launch in the region and many initiatives being set up as well by government and non-government authorities to support the growth of entrepreneurship. While the region has a strong entrepreneurial culture, small businesses are faced with funding challenges that are becoming a barrier to growth.
According to the World Bank, the MENA region needs to create 75 million jobs in the next two decades to tackle the increasing rate of unemployment. Given that 60-70% of these jobs are created by SMEs, there is a pressing need to ensure businesses are able to expand and scale. 90% of job hires are made after a business gains funding and as such, SMEs and growing businesses need more accessible means to source capital for growth.
The region also has a large pool of potential investors with high disposable incomes that is looking for alternative investment opportunities. This current dynamic is also a reason why we chose the UAE and key markets in the Middle East to launch Eureeca, providing both growth and investment opportunities first to the promising entrepreneurial community in the region.
Is there an increase in the number of start-ups being setup in the Middle East and Africa region?
Eureeca’s platform is best suited to those businesses already in operation and wanting to secure capital to grow and expand. Over the last few years we have definitely witnessed an increase in the number of start-ups that are being set up in the region. The dynamics in the region are clear for start-ups to get created and continue growing.
There are simply not enough jobs being created to cater to the number of youth entering the workforce thus driving the growth of entrepreneurship and start-ups. However once a start up looks to grow there are limitations when it comes to securing funding. A clear funding void exists.
There are also some great innovative and progressive business ideas that are being put forward by young entrepreneurs in the region. It is logical to see this trend with the region’s young, fast growing population looking for jobs and learning about entrepreneurial opportunities in universities, the media , and so on.
What according to you is needed for start-ups in the MEA region in order to be successful?
More support initiatives from both government and non-government entities are definitely needed to fast-track growth for small businesses in the MEA region. For instance, lack of access to credit information is one of the main reasons why banks do not lend to small businesses. Credit bureaus are not established in the region and banks are doing little to increase lending to the SME sector.
This is especially prevalent in the UAE, where only four per cent of bank loans go to SMEs. In KSA, this figure is even lower, at two per cent. Of course, alternative funding channels such as crowdinvesting are facilitating growth for small businesses by fast-tracking the flow of capital from the crowd to entrepreneurs and bringing new investment opportunities for individuals.
Does crowdinvesting really work? How are investors benefited from this concept? How do businesses benefit from this concept?
Eureeca benefits both investors and SMEs applying for funding. For SMEs and growth businesses seeking financial investment, Eureeca offers a fully integrated, sophisticated and far-reaching online platform to showcase funding proposals to a wide network of the crowd (investors). By spreading the equity over a larger pool of investors, Eureeca helps reducing shareholder demands for business owners, which are an added source of stress when seeking funding through institutional investors.
Eureeca also empowers and enables SMEs to structure their business in order to raise funds efficiently, transparently and save precious time to focus on their business. In addition to facilitating funding, Eureeca helps entrepreneurs create a network effect for their product or service via the crowd and several brand ambassadors who have a vested interest in promoting the business and virally promoting.
For the average individual now investment is possible! Eureeca offers more investment opportunities at an accessible entry level. Eureeca empowers the average individual to invest in businesses they love and believe in for as little as US$100 and be part of their growth. We also help investors use the collaborative wisdom of the crowd to determine investment potential of a business.
What sort of legalities are involved in crowdinvesting? Do you work with local governments to ensure everything is accounted for and investors do not get cheated of their investments?
Every SME and investor that comes onto eureeca.com has already passed through a due diligence process carried out by a third-party international global compliance firm. These compliance checks ensure that entrepreneurs and investors are legitimate before listing them online.
Investors are also expected to carry out their own due diligence on businesses that interest them just as they would with any investment offline. We also use recognised and approved lawyers to oversee operations, global administrators and recognised banks for our cash movements to ensure maximum protection for entrepreneurs and investors.
Eureeca.com takes the traditional funding process online and therefore, any investor on the site has the same contractual rights and protection as any other private equity investor in the world. If fraud does occur, it will be a criminal offence that investors can pursue recovery for through the courts.
Eureeca is disrupting the way people find funding and it’s been an exciting process so far. Since they day we launched 1 month ago we have had three businesses go onto our platform, over 1300people sign up to join it, over 45 active investors and growing. Nabbesh.com, skills marketplace platform launched their proposal on June 18th and has already secured 30% of their funding goal in 2 days!
Given that we are sector agnostic we are able to reach businesses who are often overlooked by traditional financing models. These are everyday businesses that you and I know and love who have a wider network than they realise of people who would want to pool their funds together to invest in it’s expansion and growth.
